?1bn isn't a lot to mend a broken bank

With dry understatement, the financial rescue team now running Abbey National - the mortgage bank that thought it was a £100bn hedge fund - finally pulled back the curtain on the persistently deluded institution yesterday.

And what a sight: "The resulting loss before tax ... of £984m is extremely unsatisfactory to all our stakeholders and highlights the real challenges that the business is facing up to," observed chief executive Luqman Arnold.

The bank is going back to being a regular bank, and "all businesses outside this remit are to be managed for value and exit ..." In the meantime, an emergency dose of sensible accounting means "embedded value re-basing and other related adjustments" of £632m for the past year and £480m for previous years, "goodwill impairments of £1.14bn" and "provisioning, impairments and losses on disposals of credit impaired assets in the wholesale bank totalling £902m".

It is clear that when Arnold and his gifted financial mechanic Stephen Hester were handed control of Abbey last summer after the departure of Ian Harley, they were taking on a problem of similar proportions to the Long Term Capital Management meltdown of 1998. It really was that bad - and the only reason we still have a bank called Abbey today is because these men and their advisers worked with incredible speed and precision, isolating the toxic areas of Abbey's balance sheet, selling assets and ring-fencing risk.

In context, a £1bn headline loss feels like a small price to pay.

This is not a case of rogue trading or corporate malfeasance. Gareth Jones, the man who believed Abbey's wholesale arm could be a first division player on the world stage, along with other senior executives, made a simple but catastrophic error: they confused markets going up with their own performance, and then quadrupled their bet.

Jones et al thought they had found a new way to make money and deceived themselves by applying loose accounting standards that failed to highlight underlying risk. They were incompetent.

The affair highlights the cultural gulf between the US and Britain when it comes to numbers. In America, with its rules-based approach to accounting, umpteen inquiries would be now be under way and the SEC would be living in Abbey's Euston Road headquarters. In Britain, the principles-based approach means nobody can say whether Abbey's books were cooked or whether they were simply warm, having lain in the sun of the great bull market for too long. To be sure, the Bank of England expressed disquiet about Abbey's trading operations back in 1996; clearly, its mutters of disapproval were ignored.

Still, let's look on the bright side. In tackling Abbey's problems and then explaining to the market exactly what action is being taken, Arnold and his team have set impressive new standards in terms of disclosure. For the first time the riskiness of the bank can be assessed by outsiders.

It would be nice if the rest of Britain's banking and insurance industry followed suit. But don't hold your breath.

Corporate fleece


An otherwise gloomy analysis of the state of the economy from the ONS yesterday contained one hopeful set of figures. Corporate profitability has recovered for the second quarter, prompting some suggestions yesterday in the City that if profits are up, investment can't be far behind. About time, too, after Tuesday's dreadful business investment data showing the steepest annual fall since records began in 1965. Investment has fallen in seven of the last eight quarters, and is falling faster than in most other major economies.

In the present uncertain environment, companies will no doubt continue to put off major capital projects. But yesterday's figures suggest that they at least have some insulation against any more chill winds blowing in from the global economy.

That could leave them in a more robust position to start investing once the uncertainties clear away.

Cool hand Luc call


Netherlands supermarket chain Ahold is in crisis. The discovery of huge "accounting irregularities" - that is, black holes - at the international retailer's American and Argentinian offshoots has prompted a cataclysmic fall in the group's share price - it's dropped about 70% since Monday - and will mean a fire sale of the group's assets.

The group's chief executive and chief financial officer have rightly been bundled through the exit, and Ahold - the third largest food retailer in the world - now needs somebody to get a firm hold of the group's €12bn debt.

In a crisis of this scale an outsider would undoubtedly be preferable. He or she will have to know European retail and will have to have earned their stripes as a recovery specialist.

Could this be a new job for cool hand Luc - Marks & Spencer's Luc Vandevelde?

He hauled M&S back from what looked like terminal decline, but is now holed up in Claridges working just three days a week as chairman and mulling over new ventures. Ahold should send for the Muscles from Brussels.